In the latest in our series, Portfolio Adviser hears from BNY Mellon Investment Management head of UK intermediary distribution Michael Beveridge (pictured right)
Which particular asset classes and strategies do you anticipate your intermediary clients focusing on over the second half of the year and into 2022?
We are positive on the equities space as one of the more attractive risk asset options available to investors, although downside risks for this asset class remain. Within equities, investors should consider the upside potential of cyclical and value stocks. Despite recent underperformance, we expect these to outdo growth stocks. This said, over the longer term, we do see big tech and growth stocks as favourites.
In 2022, we expect cyclicals and value stocks could outperform again, as confidence rises and fears surrounding the delta variant subside. The current undervaluation of value stocks puts these assets in a great position moving forward. Although these areas offer exciting investment opportunities, it is important investors maintain a diversified portfolio.
Some of the funds we have seen significant demand for recently include Walter Scott’s BNY Mellon Long-Term Global Equity Fund, a high-quality growth equity portfolio. We expect there to be more demand for the Newton-managed BNY Mellon US Equity Income Fund in 2022 as investors move towards value stocks.
“Expectations for future demand make renewables a key area of interest for many of our clients.”
Should end-investors – and, by association, asset managers – be thinking beyond equity and bond investments? Towards what sort of areas?
It is becoming increasingly apparent that, for some investors, equities and bonds alone do not offer the outcomes they seek anymore. For these investors seeking diversification outside equities and bonds, an allocation to alternatives is a potential solution.
Some of our products, such as the Newton-managed BNY Mellon Real Return, Sustainable Real Return, BNY Mellon Multi-Asset Income and Diversified Return funds, offer investors liquid exposure to alternatives and real assets such as infrastructure and renewables.
The fund managers of these products believe these types of assets offer a particularly attractive investment opportunity given they are resilient. During the pandemic investors were able to see how these assets performed in a downturn and, in a time of widespread dividend cuts, these assets were able to continue dividend payments, demonstrating their ability to deliver stable long-term cashflow for investors.
In addition to this stability, expectations for future demand make renewables a key area of interest for many of our clients. Increased pressure for governments to decarbonise economies is likely to encourage an energy transition that spurs on the trend towards renewables. We are already seeing increasing investor interest in sustainable investment, and investors would do well to get ahead of this trend.
Finally, the hot topic in most client conversations today is inflation, and some parts of the alternatives space can offer investors protection given their inflation-linked revenues.
Given client and regulatory pressure on fees and charges, how is your business delivering value for money to intermediaries and end-clients?
Delivering value to intermediaries and end-clients has always been a priority and focus at BNY Mellon Investment Management. Reviews of our fund ranges and services offered to our retail investors began years ago – initially in response to the FCA’s expectations on treating customers fairly and in line with the principles set out under the Retail Distribution Review regarding greater transparency on charging and advice for investors.
Since then, we have taken measures such as reducing fees at the share class level, inviting investors to convert their holdings to lower-cost share classes, or compulsorily converting them to lower cost shares when we believe it to be in their best interest, so that we can pass on cost-savings and provide improved investment outcomes.
In addition to annual assessment of value reports where the fund board objectively assesses seven criteria, including fees and charges on our funds, we as a firm regularly review our fund range and implement what we believe to be relevant and, importantly, thoughtfully considered changes that benefit of our investors.
How much of your distribution is currently oriented towards ESG issues and sustainable investing? How do you see this evolving over the next 18 months?
ESG and sustainable investment has been a crucial part of our distribution strategy over the past 18 months. We are seeing huge demand for sustainable and responsible investment products, with the Investment Association estimating there is now approximately 5% of industry assets under management in these types of strategies.
Some of our investment firms, including Newton and Insight, for example, are leaders in this space and already have a number of dedicated responsible and sustainable strategies that have received considerable client attention. As at 30 June 2021, Newton was managing close to £7bn in sustainable and ethical strategies, and Insight has recently launched its Responsible Horizons suite for UK and European investors.
We also built out two CPD-accredited courses on responsible investment with Newton’s head of sustainable investment, Andrew Parry, which were rolled out during the first lockdown. We were one of the first asset managers to launch these courses and we have had remarkable interest – within a few hours we had 400 advisers register to attend the first course. The entire series has been a huge success with more than 2,500 IFAs and wealth managers attending four separate courses, which was beyond our expectations.
“The resilience of this industry and its people over the last 18 months has been incredible.”
In what ways do you think the experience of the last 18 months has permanently affected or changed the asset management sector?
First, compared with many other industries, the investment management sector has been incredibly lucky to be able to continue working as normal from home – something we need to remain highly cognisant of.
In the UK, household savings ratios have reached staggering highs and as we edge back to normality this in part could be committed to the industry over the coming years. In addition to a potential increase in retail investment, another theme I expect will continue is the increase in clients driving conversations about ESG and sustainable investment. The resilience of the industry and its people has been incredible and, hopefully, this has proven presenteeism is over.
How do you plan to balance face-to-face and virtual distribution? Have you identified aspects where one is especially better (or worse) than the other?
The strides we have made in the use of technology have been incredible, and indeed I have personally learned a lot of new IT skills during this period. Ultimately, clients will determine how we engage with them and I am already noticing a range of personal choices in how we do so going forward.
I believe more robust conversations tend to come from face-to-face meetings as it is harder to decipher traits like company culture virtually. In my view, clients still acknowledge online meetings remain an efficient approach, although there is growing fatigue, so a balance will prevail in time.
Did you manage a staycation or to get abroad this summer?
We initially rolled our family summer 2020 holiday to October 2021, and just moved it again to summer 2022. We are hoping that is the last rollover! This summer we visited Newcastle for a couple of nights to revisit old haunts and spent the rest of the time mostly golfing at home, which was like an elongated weekend without the laptop.
What aspects of your own lockdown routine do you expect to continue with as people migrate back to office-working?
I have spent the last 15 years travelling every week, so I have enjoyed much more time with my family than ever before. I think there is also considerable efficiency to be had from working from home. An improved balance of time between the office and home will be one of the few improved outcomes from the last 18 months.
More generally, what are you expecting from ‘the new normal’?
I would hope we retain flexibility of working practices, keep up the spirit of resilience the industry has shown and indeed maintain the culture of showing heightened empathy to others. There is an increasing thirst from clients to return to in-person contact while keeping the flexibility that has been created. Meanwhile, on a personal level, I hope my son gets to enjoy a proper third year at university and that my two daughters have a full school year with all the experiences that affords.
